Minimum Wage Bill Heads to Negotiations

Republicans are warning Democrats not to tamper with Senate-passed minimum wage legislation, saying the bill's mix of $8.3 billion in tax breaks and a $2.10 an hour wage hike offers the right economic and political balance.

The Senate, in a 94-3 vote Thursday, passed an increase in the minimum wage from $5.15 to $7.25 an hour over two years. The bill also would extend small business tax cuts, close off some corporate tax loopholes and rein in executive compensation.

Labor leaders and many Democrats, however, would like to strip the tax provisions from the bill and only send the minimum wage increase to President Bush for his signature. A House version, passed last month, contains no tax measures.

"I strongly encourage the House to support this combined minimum wage increase and small business tax relief," Bush said in a statement following the Senate vote.

Democrats and Republicans already were blaming each other for any obstacles to reconciling the House and Senate bills.

Party Disagreements Persist

"Republicans are demanding billions in corporate tax breaks in exchange for a $2 bump in the minimum wage," said Gerald W. McEntee, president of the American Federation of State, County and Municipal Employees. "As they play their political games, low-income workers continue to wait for their first raise in a decade."

Sen. Charles Grassley, R-Iowa, said the overwhelming vote in favor of the Senate bill was a clear signal that the minimum wage and tax breaks must be linked. He scolded House Democrats for insisting that the tax provisions be removed.

"No one should be mistaken," Grassley said. "It is House Democrats, not Senate Republicans, who are delaying passage of the minimum wage."

In a common Democratic refrain, Sen. Barack Obama, D-Ill., criticized the tax breaks attached to the bill. "It should not be loaded up, it should not be complicated," he said. "The notion that we are still using this as a bargaining chip, dickering for various other tax breaks I think makes no sense. It's time to get this done."

Complicating the House-Senate negotiations are constitutional precedents that require tax legislation to originate in the House. The House could draft a small business tax bill and send it to the Senate where it would dovetail with the Senate minimum wage bill. House and Senate negotiators could also meet in a joint conference committee to reconcile the two bills.

Grassley said he was wary of a conference committee because he feared House and Senate Democrats would conspire to strip out the tax breaks.

The legislation would raise the minimum wage in three steps. It would go to $5.85 an hour upon taking effect 60 days after the president signs it into law, then to $6.55 an hour a year later, and to $7.25 an hour a year after that.

Small Business Tax Bill

Besides increasing the minimum wage, the bill would extend for five years a tax credit for businesses that hire the disadvantaged and would provide expensing and depreciation advantages to small companies, including retailers that own their own stores. The tax breaks would be paid for by closing loopholes on offshore tax shelters, by capping deferred compensation payments to corporate executives and by removing the deductibility of punitive damage payments and fines.

"This bill is particularly important for small, Main Street retailers who have been in business for generations and are more likely to own their stores than national competitors leasing space at the mall," said Steve Pfister of the National Retail Federation.

Senators also adopted an amendment that would bar companies that hire illegal immigrants from obtaining federal contracts for up to 10 years. That measure was designed to encourage companies to participate in an employee identification program that can weed out undocumented workers.

While the tax breaks have won the support of small business groups as well as retailers and restaurant owners, they have drawn opposition from larger businesses that would bear the brunt of the revenue provisions. Several business groups also opposed the immigration measure.